No Merger: Corel and Borland/Inprise call it off

17 May 2000 – It took one quarter for the Corel - Inprise/Borland merger to tank. The end of the deal was formally announced today, three months and one week after the merger announcement on 7 February.

In fact, the whole thing started sinking
in March, when Corel released its quarterly financials, with a loss
of $12.4 million, or 19 cents a share, on sales of $44.1 million,
along with warnings of probable losses over the next two quarters.
Then, in a later securities filing, Corel said it would face a cash
shortage in the next three months if the merger didn't proceed or
if other sources of financing didn't appear. In that same month,
Robert Coates, chief executive of investment company Management
Insights, resigned from the Inprise/Borland board in protest over
the merger.

And then there was the stock market. The deal was structured
as a Corel purchase, to be paid entirely in Corel (CORL) stock.
That stock was worth about $20/share at the time the deal was
struck. At NASDAQ's close yesterday, the stock was worth $5.41,
reducing the value of the deal by more than 70%, from $1.07 billion
to just $290.5 million. Inprise/Borland's stock (INPR) has fallen
as well, but not from the same altitude. Inprise/Borland stock was
valued at about $13/share at the time of the deal. Yesterday it
closed at $5.84.

The
official
word from Corel was this: "Because of significant changes
since the merger was agreed to more than three months ago, Corel
has concluded that it is in its best interest to terminate the
agreement at this time." Inprise/Borland's
press
statement added nothing substantive. But in a conversation
this afternoon, Dale Fuller, Inprise/Borland interim president and
CEO, was frank about the matter.

"The thing turned into a boat anchor, and we're glad it's
over and we can move on," Fuller said. Asked what killed a
promising merger, Fuller
replied, "I see three things that put the nails in the coffin for
this deal. First, Corel missed their first-quarter numbers
dramatically. Second, they announced that their next two quarters
would be similar, which only made the problem worse. Third, they
announced that they would be out of money in three months. And we
saw no plan to do anything about it, except ride the wave down.
Credibility and confidence derive from planning and execution. We
weren't seeing that, and the stockholders weren't seeing that." The
decision to call the deal off, however, was "a completely mutual
decision," he added.

Fuller still has kind words for Corel. "I think their
products are very good, and the strategy of combining their
products with ours was very good; but I think that strategy can go
forward with all the other players anyway. We have a number of
other players who want to work with us."

One investor, who spoke under anonymity, offered a grim
outlook for Corel. "I think Corel's strategy has been to look for
stock market reward rather than a long-term strategy. There isn't
any institutional following on Corel's stock, so they play to the
retail investors. Those people reacted enthusiastically to the
news, but in fact the company is closer to bankruptcy. They had
projections for Inprise that were wildly off - frankly because I
think they didn't know what they were doing. They're clearly not a
well-organized company. A bank won't lend them money. There is only
very diluted financing available, so they're going to have to issue
a lot of stock. And where are they going to find $40 million in
cost savings? That's a huge chunk of what they spend in a year.
They do have products that should survive, but the company just
isn't that well-managed. On the other hand, Inprise has a lot of
cash and a lot of NOLs - Net Operating Losses - that are very
useful in the future."

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